Coke/CCE deal: John Brock on what it means for Atlanta
By Maria Saporta
Friday, September 3, 2010
The good news for Atlanta is the headquarters for the new Coca-Cola Enterprises Inc. is staying put.
The not-so-good news is that once it completes its $13 billion transaction with The Coca-Cola Co., CCE will go from 70,000 employees to 13,000 employees. And CCE’s workforce in Atlanta will go from 3,500 employees to about 100.
The other 3,400 employees will join Coca-Cola. About 10 CCE employees will be transferred to CCE’s European headquarters near London.
Expected to close in the fourth quarter, the transaction will mean CCE will go from being the world’s largest Coca-Cola bottler to becoming the world’s third-largest independent bottler of Coca-Cola products.
“The new CCE will be an entirely western European business,” said John Brock, the CEO of CCE, who will continue in that role after the transaction. “The new CCE, our European business, is a very attractive business with strong market shares, high profit margins and lower consumption rates. The opportunity for growth is huge.”
So the natural question is why would CCE keep its headquarters in Atlanta although the overwhelming majority of its employees and all its operations will be across the Atlantic Ocean.
The simple answer is taxes — capital gains taxes. “Our businesses today in Europe are worth significantly more than what we paid for them 10 years ago,” Brock said Aug. 26 in an extensive interview with Atlanta Business Chronicle. “The tax bill would be in the billions of dollars.”
There are other reasons why it makes sense for the new CCE to stay in Atlanta.
“The 100 or so employees that we want to run the business are already here, so it’s minimally disruptive,” Brock said. “We like Atlanta. We are near The Coca-Cola Co. And it’s an easy place to get in and out of.”
The new CCE will remain at its current location at 2500 Windy Ridge Parkway in Cobb County’s Wildwood development, but its operations will be reduced to two floors — 14 and 15. Renovation on those two floors already is under way.
“We didn’t even consider remotely moving from Atlanta,” Brock said. “We have looked 10 to 15 years out, and we can’t envision a situation where we are not domiciled in the United States and headquartered in Atlanta.”
The proposed deal between Coca-Cola and CCE is multifaceted. If approved by CCE shareholders on Oct. 1, Coca-Cola will acquire all of CCE’s North American operations.
CCE will continue running its operations in Great Britain, Holland, France, Belgium, Luxembourg and Monaco. On the same day that the North American transaction takes place, CCE will acquire Coca-Cola’s bottling operations in Sweden and Norway.
And while the new CCE’s business will be entirely in Europe, Brock said that could change. “We could always end up buying bottlers in other parts of the world,” he said.
In addition, CCE will continue to be traded on the New York Stock Exchange, which will allow the company to “keep much of our current investor base,” Brock said.
Brock said the financial prospects for the new CCE are much stronger than the current company, which has annual revenue growth of between 4 percent and 5 percent. After the transaction, growth should be between 8 percent and 9 percent.
“We have had four consistent years of volume and profit growth in Europe. The new CCE will have between $7 billion and $8 billion in sales,” Brock said. “CCE will be a very attractive place for investing.”
Under the agreement, 18 to 36 months after the original deal is completed, the new CCE also will have an option to acquire Coca-Cola’s 83 percent equity stake in its bottling operations in Germany.
Although Germany would add to the size of the new CCE, Brock said it is too soon to know whether the company will exercise that option. Germany has 11,000 employees (just slightly fewer than CCE’s workforce) and 24 plants, but it only sells about 300 million cases of product a year.
With Germany, the new CCE would have about $10 billion in sales and sell about 900 million cases a year.
What is known is that the decision to buy the German bottling operations will be made by executives in Atlanta. All the top executives have signed multiyear contracts lasting at least three years to stay with the company.
In addition to Brock, the executives in Atlanta will be the chief financial officer, the chief legal officer, the chief human resources officer and the chief information technology officer. The public affairs officer, Laura Brightwell, will be moving to London in a few months.
Meanwhile, Brock has been meeting with investors, who he said have “a huge amount of interest in this new business model.” Since the deal was announced in February, CCE’s stock price has gone from $20 a share to more than $28.
Brock added that CCE had “walked away from the deal at least twice,” because it “wasn’t the right deal.” But now Brock can hardly contain his excitement over the growth potential of the leaner CCE.
“The opportunity for shareowner value creation is really significant,” Brock said. “Our new CCE capital structure is going to be very robust. It’s a remarkable business going forward.”
After the transaction, Brock expects to spend about a week each month in Europe, but he added that CCE “will really be a virtual organization.”
For Atlantans who care about bragging rights, CCE will continue to be on the Fortune 500 list. It will go from its 2010 ranking of 113 to in the lower 300s based on prospective sales. That means Atlanta will not be losing the headquarters of a Fortune 500 company.
More importantly, Brock will remain a key civic business leader in Atlanta, said Sam Williams, president of the Metro Atlanta Chamber. Brock is in line to chair the chamber in 2011. He has been a co-chair of Gov. Sonny Perdue’s Water Contingency Task Force. And as a Georgia Tech alum, he serves on the board of the Georgia Tech Foundation.
Because of CCE’s ties in Europe, Williams hopes Atlanta will be able to leverage the bottler’s relationships with other European companies.
Brock, who lives with his wife in Buckhead’s St. Regis (they have three adult children who live in other cities), moved to Atlanta from Belgium four and a half years ago. Saying he has no plans to leave Atlanta, Brock has committed to Williams that he will fulfill his obligation as the 2011 chairman of the chamber and continue serving as a civic leader in Atlanta.
“John is so personally committed to Atlanta and to his roots at Georgia Tech,” Williams said. “It’s an alignment of circumstances, and the beneficiary is Atlanta.”